Leading payments technology company Visa Inc. (V) reported solid results for the fourth quarter. The company reported higher-than-expected earnings and revenue in the last quarter. Its EPS was 3.5% above the consensus estimate, while its revenue beat analyst estimates by 3.1%.

V’s payments volume in the fourth quarter rose 10% year-over-year on a constant-dollar basis, while total cross-border volume increased 36% year-over-year. Its processed transactions climbed 12% over the prior-year period. For fiscal 2022, payments volume increased 15% on a constant-dollar basis, and processed transactions rose 17% year-over-year.

V's Chairman and CEO Alfred F. Kelly, Jr., said, “In Visa’s fiscal fourth quarter, we saw a continuation of many of the spending trends present throughout 2022: strength in consumer payments, resilience in eCommerce, and ongoing recovery in cross-border travel.”

“As we look ahead, while some short-term uncertainty exists, we remain confident in Visa’s long-term growth trajectory across consumer payments, new flows, and value-added services,” he added.

For the fourth quarter and fiscal 2022, V returned $2.90 billion and $14.80 billion, respectively, to its shareholders through share repurchases and dividends. In addition, its board of directors increased the quarterly dividend by 20% to $0.45 per share and authorized a new share repurchase program of $12 billion.

V pays $1.80 per share dividend annually, yielding 0.87% on the current share price. Its four-year dividend yield is 0.62%. Its dividend payouts have grown at a CAGR of 14.5% over the past three years and 18% over the past five years.

V’s shares have gained 17% in price over the past three months. On the other hand, its shares have declined 4.6% over the past year to close the last trading session at $207.76.

Here’s what could influence V’s performance in the upcoming months:

Robust Financials

V’s net revenues increased 19% year-over-year to $7.79 billion for the fourth quarter ended September 30, 2022. The company’s operating income grew 17.9% year-over-year to $5.09 billion. Its non-GAAP net income and EPS came in at $4.10 billion and $1.93, up 16% and 19% year-over-year, respectively.

Favorable Analyst Estimates

V’s EPS for fiscal 2023 and 2024 is expected to increase 10.5% and 15.9% year-over-year to $8.28 and $9.60, respectively. Its revenue for fiscal 2023 and 2024 is expected to increase 8.6% and 11.7% year-over-year to $31.84 billion and $35.58 billion, respectively. 

It surpassed Street EPS estimates in each of the trailing four quarters.

Stretched Valuation

In terms of forward EV/EBITDA, V’s 19.49x is 60.4% higher than the 12.15x industry average. Its 13.67x forward EV/S is 452.8% higher than the 2.47x industry average. Likewise, its forward P/B is 10.21x is 169.6% higher than the 3.79x industry average.

High Profitability

In terms of the trailing-12-month gross profit margin, V’s 97.47% is 96.8% higher than the 49.53% industry average. Likewise, its 70.35% trailing-12-month EBITDA margin is 499.1% higher than the industry average of 11.74%. 

Furthermore, the stock’s 67.42% trailing-12-month EBIT margin is 918% higher than the industry average of 6.62%.

POWR Ratings Reflect Uncertainty

V has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. V has a D grade for Value, in sync with its stretched valuation.

It has an A grade for Quality, consistent with its high profitability. Also, its favorable analyst estimates justify its B grade for Sentiment.

V is ranked #7 out of 48 stocks in the Consumer Financial Services industry. Click here to access V’s Growth, Momentum, and Stability ratings.

Bottom Line

V performed well in 2022 on the back of solid growth in payments volumes, processed transactions, and cross-border volumes. With many analysts expecting a recession this year, V’s earnings and revenues could take a beating with a decline in payments volume and processed transactions.

Despite its robust financials, favorable analyst estimates, and high profitability, V is trading at an expensive valuation. Thus, it could be wise to wait for a better entry point in the stock.

How Does Visa Inc. (V) Stack up Against Its Peers?

V has an overall POWR Rating of C, equating to a Neutral rating. Therefore, you might want to consider investing in other Consumer Financial Services stocks with a B (Buy) rating, such as MainStreet Bancshares, Inc. (MNSB), Atlanticus Holdings Corporation (ATLC), and Regional Management Corp. (RM).

V shares were trading at $206.45 per share on Tuesday afternoon, down $1.31 (-0.63%). Year-to-date, V has declined -0.63%, versus a -1.07% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

More...